Activist employers are a ‘wake-up call’ for the next generation of insurers

With two monster vertical healthcare mergers nearing completion, the next generation of managed care companies is likely to face increased pressure from self-funded employers looking to bend the cost curve on their own.

The potential for large, self-insured employers and new employer coalitions to cut into the profits of insurers should be a “wake-up call” for organizations like CVS-Aetna, Cigna-Express Scripts, UnitedHealth and Humana, Leerink analysts Ana Gupte, Ph.D., and Daniel Grosslight wrote (PDF) in a note to investors Friday. 

The pair points to large businesses such as Comcast and Walmart as well as the Amazon-JP Morgan-Berkshire Hathaway coalition as new and formidable competitors in the commercial market moving forward.

“We believe MCOs have their work cut out for them, and that meaningful action would likely involve less cross-subsidization of the more lucrative and growing Medicare Advantage (MA) product through self-insured network contracting, and more innovative approaches and investments on both provider contracts and technology-enabled member engagement and analytics,” they wrote.

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Comcast has already indicated it is willing to bypass insurers and contract directly with providers. General Motors recently inked a deal with Henry Ford Health System for a new “ConnectedCare” plan option for its employees.

Meanwhile, more than 40 employers have formed the Health Transformation Alliance aiming to “fix our broken healthcare system.”

The nation’s biggest employers are clearly focused on reducing healthcare costs. A survey by Willis Towers Watson released at the beginning of the year showed 97% of employers said overall health program design and costs were an important priority over the next three years, and 85% said they planned to evaluate vendors best positioned to deliver on that strategy. Nearly two-thirds said they were focused on network strategy including utilizing high-performing providers.

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What do the big insurers have to lose? Not much when it comes to revenue, because commercial plans make up a much smaller percentage of overall revenue, especially compared to Medicare Advantage. But large employers remain a “key customer base and vocal and powerful constituency” for payers, and account for a large portion of membership.

That will likely prompt more concerted efforts to invest in platforms aimed at bringing down employer costs, especially as more technology companies enter the race for healthcare’s “digital front door.”

“We expect [managed care organizations] to renew their focus and attention on this constituency with increased investments in provider contracting and member engagement,” the Leerink analysts wrote.